Philippines Project Makes Melco Crown A Buy

| About: Melco Crown (MPEL)

News broke today that casino operator Melco Crown Entertainment Limited (NASDAQ:MPEL) is exploring options to open a casino in the Philippines. The company is said to be partnering on a billion-dollar casino resort in Manilla, the capital city. The latest rumors have Melco partnering with the Philippines' richest man Henry Sy Jr. The deal would see a 50-50 joint venture between the casino, hotels, and entertainment available at the property.

The city, which had 1.7 million people as of 2010, is the second most populous city in the nation. The Philippines are hoping to turn a portion of the Manilla region into a gaming area similar to the Las Vegas strip. There are currently four gaming licenses available in the Manilla region:

  • Belle Corporation - has already agreed to a partnership with Leisure & Results World Corporation to run casino portion. The companies would split EBITDA.
  • Bloomberry Resorts - opening a $1.2 billion casino resort early next year, is partnered with Global Gaming Asset Management, which will run the casino portion. Global Gaming is ran by former executives from Las Vegas Sands (NYSE:LVS).
  • Genting Hong Kong/Alliance Global Group - joint venture between Malaysian company and Philippine conglomerate.
  • Universal Entertainment Corporation

The latest reports have Melco Crown in talks to acquire Leisure & Results interest with Belle Corporation. A casino project from Melco would diversify the company. Melco Crown operates all of its businesses inside Macau.

Melco owns one of six gaming licenses in the Macau region. The region has attracted large casino companies like Las Vegas Sands and Wynn. The area also overtook Las Vegas as the gaming capital of the World. Investors sent shares of Melco and other casino companies down earlier this week on rumors of visa restrictions. With travel to Macau possible by ferry from the mainland, residents have to have a visa to go to the island and spend time there. Yesterday, reports came out that the government has not been talking about visa restrictions. In 2011, 16 million residents from the mainland visited Macau.

Melco Crown operates the Altira Macau and City of Dreams casinos in Macau and also owns a chain of gaming machines under the Mocha Club brand. A third casino is planned in Macau called the Studio City project. The casino is 60% owned by Melco Crown, after it acquired interest in the project in 2011. The casino is expected to open in 2015 with a main floor area of 465,000 square feet. The entertainment resort is scheduled to open with four hotels and several entertainment venues. The company will be a premiere resort to host concerts and sporting events. Melco's CEO called the land the best on the Cotai Strip, due to its closeness to the Lotus Bridge. The resort will also be a stop on the Light Rapid Transit line of transportation.

Another investment worth making here is the Van Eck Gaming ETF (NYSEARCA:BJK). Las Vegas Sands is the largest holding and is a nice investment with properties in Las Vegas, Macau, and Singapore. Melco makes up the 11th largest holding and is 2.8% of the exchange traded fund. I see major players like Las Vegas Sands and Wynn making a play for land in Philippines. Any time a new international area opens up its doors for casinos, it represents an investment opportunity for casinos.

Shares closed up 2.6% to end the trading day at $11.29. Shares now sit in the mid range of their fifty-two week stock prices of $7.05 to $16.15. Melco has growth ahead of it with the Studio City project and now the potential of a project in the Philippines. Meclo has been growing its market share and increasing revenue from hotels and no- gaming events. Take advantage of shares being down right now before it is too late.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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